Posted on Feb 10, 2017 |Publications

By: Susan Hernandez, Esq.
November, 2015

Assume that you are involved as a plaintiff or a defendant (carrier) in a serious injury case and that the injured party has collected workers' compensation so the issue of a lien payback will be part of any settlement. Also assume that the plaintiff may have sought, or is receiving social security disability payments or will soon be eligible to collect social security retirement benefits. Finally, add that the injuries are such that the injured party will likely require future medical treatments. You have entered the Twilight Zone, that is, the world of compensation repayments and the dreaded Medicare Set Aside.

This article will not be about what to do with a compensation lien or a Set Aside. Rather, it is about the necessity to think these things through and to talk to your adversaries (insurance carriers) about such before coming to mediation.

As a mere simplified precis of the possible problems that can ensue in such a scenario, it is common knowledge that compensation will have its hand out for repayment of a good portion of its lien from any settlement reached at mediation. Therefore, whether or not the compensation carrier will be present for the mediation, you would be well advised to find out from that carrier what amount is needed to expunge the lien. Should your client accept a section 32 settlement from the compensation carrier? A discussion with the client of the effect of such a settlement regarding his/her future medical payments and the possible necessity of a Set Aside is also required before accepting that settlement.

If a section 32 settlement has not occurred, talk to the compensation carrier regarding only settling the indemnity portion while keeping the medical portion open, with the carrier getting credit for any holiday period to which it is entitled from the proceeds of the settlement. In reality, in a serious injury case, the settlement proceeds for the injured party are usually so large that the holiday period will never be exhausted and the carrier will never be called upon to pay for medical services. But what this does is prevent the necessity of having to create a Medicare Set Aside fund and to seek the approval of the Centers for Medicare & Medicaid Services (CMS) for the Set Aside fund being created (see: CMS Advisory dated April 22, 2003 sent from the Director of the Center for Medicare Management to Regional CMS Administrators). It should be remembered that the need for a Set Aside came into being in 2007 with the Medicare, Medicaid and SCHIP Extension Act applying to all claims in compensation or liability (including no-fault). It also covers the possible necessity of a Set Aside if the injured party is Medicare eligible. Eligibility occurs if the injured party has applied for SSD benefits, or has been denied those benefits but is appealing or anticipates appealing the denial, or is at least 62 1/2 years old. These criteria appear to be followed in personal injury cases as well as in compensation cases.

The requirements of CMS do not vitiate the compensation carrier's obligations under Burns v.Varriale, 9 NY2d 207 or Kelly v. State Insurance Fund, 60 NY2d 131. Because of those cases, the carrier is motivated to reach a section 32 settlement. As stated, this settlement can have ramifications on the need for a Medicare Set Aside. In discussing this settlement with the compensation carrier, it may be in the client's best interests to have the carrier, and not the client's attorney, set up the Set Aside.

In summary, the parties should come to the mediation with a good understanding of what is needed to satisfy the compensation lien, whether a Medicare Set Aside will be needed, how much the set aside will consume of the settlement proceeds and what time frame will be needed to get CMS approval for a Set Aside.

The Twilight Zone may no longer be a staple of television but, unfortunately, it is now a possible staple of serious injury cases. Don't ignore the 800-pound gorilla that can stomp all over your cases. Be prepared. That gorilla may foul up what otherwise could be a very fruitful mediation.


Susan Hernandez, Esq. is a member of NAM's (National Arbitration and Mediation) Hearing Officer Panel and is available throughout the New York Metro area for arbitrations and mediations. Ms. Hernandez was voted the #1 Mediator in New York State in the 2017 New York Law Journal Reader Rankings Survey and has been ranked a Top Ten Mediator for the past three years. Also, in 2017, she was named a National Law Journal Alternative Dispute Resolution Champion, as part of a select group of only 37 nationwide for the second year in a row. Further, she was the recipient of the 2015 “Mediator of the Year Award” by the Institute of Jewish Humanities.

To view Susan Hernandez's resume, click here.

For any questions or comments, please contact Jacqueline I. Silvey, Esq. / NAM General Counsel, via email at or direct dial telephone at 516-941-3228.